[icetonez]

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Buffett constantly talks about finding businesses that serve a repetitive need and have a durable competitive advantage that will cause the company to produce monopoly like profits in the long run. NICK does serve a repetitive need, buying auto debt, but what is it's durable competitive advantage? If I was a used car dealer and wanted to sell off some outstanding debt I don't see any reason why I would accept a lower bid from NICK than a slightly higher bid from one of NICK's competitors.

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Competitors use credit scoring as the main determinant of credit risk, allowing their central offices to cost-effectively process high volumes of loan applications. Nicholas feels credit scoring alone is not the most accurate gauge of individual client risk as two clients with identical credit ratings can offer much different risk levels. Nicholas to measure risk through factors that supplement raw credit scores, such as income level, stability, “life” trend, etc. This allows NICK to “cherry pick” clients who have lower risk than credit scores alone would indicate. Even then, Nicholas turns down 85% of potential clients.

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My understanding from DC's writeup is that NICK doesn't offer a lower bid to dealers compared to their competetors. They offer the same bid, and gain their advantage by taking a more indepth look at the invididual credit risk.